Red Violet, Inc.

Good day, ladies and gentlemen, and welcome to Red Violet's second quarter earnings conference call. At this time, our participants are in listen-only mode. Later, we will conduct a question and answer session, and the instructions will follow at that time. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Carmelo Ramirez, Vice President, Finance, and investor relations. Please go ahead.

Good afternoon and welcome. Thank you for joining us today to discuss our second quarter 2023 financial results. With me today is Derek Dubner, our Chairman and Chief Executive Officer, and Dan McLaughlin, our Chief Financial Officer. Our call today will begin with comments from Derek and Dan, followed by a question and answer session. I would like to remind you that this call is being webcast live and recorded. A replay of the event will be available following the call on our website. To access the webcast, please visit our investors page on our website, www.redviolet.com. Before we begin, I would like to advise listeners that certain information discussed by management during this conference call are forward-looking statements covered under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those stated or implied by our forward-looking statements due to risk and uncertainties associated with the company's business. The company undertakes no obligation to update the information provided on this call. For a discussion of risk and certainties associated with Red Silent's business, I encourage you to review the company's filing with the Securities and Exchange Commission, including the most recent annual report on Form 10-K and the subsequent 10-Qs. During the call, we may present certain non-GAAP financial information relating to adjusted gross profit, adjusted gross margin, adjusted EBITDA, and adjusted EBITDA margin, and free cash flow. Reconciliations of these non-GAAP financial measures to their most directly comparable U.S. GAAP financial measure are provided in the earnings press release issued earlier today. In addition, certain supplemental metrics that are not necessarily derived from any underlying financial statement amounts may be discussed, and these metrics and their definitions can also be found in the earnings press release issued earlier today. With that, I am pleased to introduce Red Violet's Chairman and Chief Executive Officer, Derek Dubner.

Thanks, Camilo. Good afternoon. Good afternoon to all, and thanks for joining us today to discuss our results for the second quarter of 2023. We are pleased to report a very strong quarter, further highlighting our ability to drive both top line growth and profitability. We are experiencing continued strength in new customer onboarding, pipeline expansion from higher tier prospects, and robust customer conversion at all levels. We again generated solid revenue growth, which combined with our dedication to operational efficiency translated into healthy margins throughout the P&L and solid net income, showcasing the company's resilience and adaptability in a dynamic market environment. Given our results and the present pulse on the business, including closing out a very strong July, we are well positioned for the back half of the year. Now turning to the numbers. For the quarter, Total revenue was $14.7 million, a 17% increase over prior year. We produced $11.4 million in adjusted gross profit, resulting in adjusted gross margin of 78% in the second quarter, up one percentage point. Adjusted EBITDA for the quarter was $4.6 million, up 58% over prior year. adjusted EBITDA margin with 32% for the quarter, up 9 percentage points. We generated $1.3 million in free cash flow for the quarter, compared to generating $0.3 million in the prior year. Our IDI billable customer base grew by 241 customers sequentially from the first quarter, ending the second quarter at 7,497 customers. ForWarn added 15,189 users during the second quarter, ending the quarter at 146,537 users. Over 285 realtor associations are now contracted to use ForWarn. Demand continues to be strong for identity and fraud solutions across the enterprise. We experienced healthy, proportional customer demand across all means of IDI access, API, batch, and online. Last quarter, we saw our new customer applications at 12-month highs. That trend continued throughout the second quarter, just reported. As well, our higher tier sales pipeline continues to grow and new higher tier prospects appear to be more receptive to the idea of introducing new solutions into their workflows than they have been in the prior nine months. Most importantly, as it relates to our view of the business and our multi-year strategic roadmap, Our growth continues to be profitable, enabling reinvestment in the business. We are strengthening the business as we scale, driving robust margins and cash flow. By way of example, our $1.9 million increase in adjusted gross profit produced a $1.7 million increase in adjusted EBITDA, a 90% contribution margin. The high operating leverage of our model enables us to dynamically adjust our capital allocation plan and affords us the flexibility of investing in our product roadmap while still maintaining a healthy financial profile. Our continued growth demonstrates that our AI ML-powered platform, proprietary linking algorithms, and unified data assets provide us a distinct advantage in delivering innovative, accurate, and highly scalable solutions. We have been building AI into our platform and solutions for years, specifically the use of machine learning through supervised and unsupervised learning to identify, among other things, the patterns and types of data within our platform. Today, There is much excitement around the potential of large language models and their varied applications. The potential uses of large language models could undoubtedly transform industries and change business processes. The most prominent large language models today are trained on large data sets, specifically publicly available information on the internet. As information on the internet contains errors, the output from such models also contains errors. What is abundantly clear at this early stage of the generative AI revolution is that the winners will be those with their own internal, proprietary, high confidence data assets. We have spent the better part of the past decade acquiring, assimilating, and internally generating data, and via our proprietary linking algorithms, unifying disparate data points to create high-confidence datasets that our clients rely on in their workflow. With our AI ML platform and high-confidence data, we believe we have an extraordinary opportunity in front of us to build a number of AI applications, including generative AI, to layer over our platform, which will not only materially enhance our platform capabilities, but also enable various industries to intelligently interact with and run analytics across our high confidence data to inform their business processes and decision making. Given the opportunity at hand, we will take a measured approach and increase our investment in AI And as time passes and the opportunities become more defined, we will be able to better quantify the plans around the size and the impact of this investment. Now, as to our stock repurchase program, during the second quarter, we purchased 44,081 shares of our common stock at an average price of $16.71 per share. In total, we've purchased 105,018 shares pursuant to our $5 million repurchase program that was authorized on May 2, 2022. We have $3.2 million remaining for additional purchases under the program. Overall, our revenue growth and profitability demonstrate the effectiveness of our business model and the resonance of our offerings in the market. Coupled with a solid balance sheet, these results reflect our commitment to growth, combined with financial stability and prudent management. As we move forward, we remain dedicated to driving innovation, nurturing customer relationships, and capitalizing on emerging opportunities. I'd like to extend my gratitude to the Red Violet team, as always, for their hard work and dedication. We are still in the early days of our long-term plan, and we are as financially strong and well-positioned as we have ever been in our history. With that, I'll turn it over to Dan to discuss the financials.